BILL NUMBER: SB 461 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Ashburn
(Principal coauthor: Assembly Member Evans)
FEBRUARY 21, 2007
An act to add Sections 7513.4 and 16642.5 to the Government Code,
relating to investments.
LEGISLATIVE COUNSEL'S DIGEST
SB 461, as introduced, Ashburn. Public retirement systems:
investments: terrorism.
The California Constitution provides that the Legislature may, by
statute, prohibit retirement board investments where it is in the
public interest to do so and providing that the prohibition satisfies
specified fiduciary standards.
Existing law prohibits the Public Employees' Retirement System and
the California State Teachers' Retirement System from investing
public employee retirement funds in a company with active business
operations in Sudan, as specified. Existing law also requires these
retirement systems to sell or transfer any investments in a company
with business operations in Sudan. Existing law requires these
retirement systems to submit an annual report to the Legislature
regarding any investments in a company with business operations in
Sudan and the sale or transfer of those investments. Existing law
requires the state to indemnify, from the General Fund, and hold
harmless the present, former, and future board members, officers, and
employees of and investment managers under contract with these
retirement systems by reason of any decision to restrict, reduce, or
eliminate investments in Sudan, as specified.
This bill would additionally prohibit the Public Employees'
Retirement System and the California State Teachers' Retirement
System from investing public employee retirement funds in a company
with business operations in a foreign terrorist state, as specified.
The bill would require the Board of Administration of the Public
Employees' Retirement System and the Teachers' Retirement Board of
the State Teachers' Retirement System to sell or transfer any
investments in a company with business operations in a foreign
terrorist state.
This bill would require these boards to report to the Legislature
any investments in a company with business operations in a foreign
terrorist state and the sale or transfer of those investments,
subject to the fiduciary duty of these boards, by January 1, 2009,
and every year thereafter.
This bill would indemnify from the General Fund and hold harmless
the present, former, and future board members, officers, and
employees of and investment managers under contract with those
retirement systems.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 7513.4 is added to the Government Code, to
read:
7513.4. (a) As used in this section, the following definitions
shall apply:
(1) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
(2) "Business operations" means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in a foreign terrorist state, including the ownership or
possession of real or personal property located in a foreign
terrorist state.
(3) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profit making purposes or to
otherwise secure economic advantage. "Company" also means a company
owned or controlled, either directly or indirectly, by the government
of a foreign terrorist state, that is established or organized under
the laws of or has its principal place of business in a foreign
terrorist state.
(4) "Foreign terrorist state" means a foreign state that sponsors
terrorism as identified by the United States Department of State.
(5) "Government of a foreign terrorist state" means the government
of a foreign terrorist state or the instrumentalities of that
foreign terrorist state.
(6) "Invest" or "investment" means the purchase, ownership, or
control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, bonds issued
by the government or a political subdivision of a foreign terrorist
state, corporate bonds or other debt instruments issued by a company,
or the commitment of funds or other assets to a company, including a
loan or extension of credit to that company.
(7) "Military equipment" means weapons, arms, or military defense
supplies.
(8) "Public employee retirement funds" means the Public Employees'
Retirement Fund described in Section 20062, and the Teachers'
Retirement Fund described in Section 22167 of the Education Code.
(9) "Research firm" means a reputable, neutral third-party
research firm.
(10) "Substantial action" means a boycott of the government of a
foreign terrorist state, curtailing business in a foreign terrorist
state, or selling company assets, equipment, or real and personal
property located in a foreign terrorist state.
(b) The board shall not invest public employee retirement funds in
a company with business operations in a foreign terrorist state.
(c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies military
equipment within the borders of a foreign terrorist state. If a
company provides equipment within the borders of a foreign terrorist
state that may be readily used for military purposes, including, but
not limited to, radar systems and military-grade transport vehicles,
there shall also be a strong presumption against investing in that
company unless that company implements safeguards to prevent the use
of that equipment for military purposes.
(d) (1) The board shall, without regard to the provisions
regarding competitive bidding, contract with a research firm or firms
to determine those companies that have business operations in a
foreign terrorist state. Those research firms shall, in the
aggregate, obtain data on a majority of companies with business
operations in a foreign terrorist state. On or before March 30, 2008,
those research firms shall report any findings to the board and
those research firms shall submit further findings to the board if
there is a change of circumstances in a foreign terrorist state.
(2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March 30,
2008:
(A) Review publicly available information regarding companies with
business operations in a foreign terrorist state.
(B) Contact other institutional investors that invest in companies
with business operations in a foreign terrorist state.
(C) Send written notice to a company with business operations in a
foreign terrorist state that the company may be subject to this
section.
(e) (1) The board shall determine, by the next applicable board
meeting and based on the information and reports described in
subdivision (d), if a company meets the criteria described in
subdivision (b) or (c). If the board plans to invest or has
investments in a company that meets the criteria described in
subdivision (b) or (c), that planned or existing investment shall be
subject to subdivisions (g) and (h).
(2) Investments of the board in a company that does not meet the
criteria described in subdivision (b) or (c) are not subject to
subdivision (h) if the company does not subsequently meet the
criteria described in subdivision (b) or (c). The board shall
identify the reasons why that company does not satisfy the criteria
described in subdivision (b) or (c) in the report to the Legislature
described in subdivision (i).
(f) (1) Notwithstanding subdivision (e), if the board's investment
in a company described in subdivision (b) or (c) is limited to
investment via an externally and actively managed commingled fund,
the board shall contact that fund manager in writing and request that
the fund manager remove that company from the fund as described in
subdivision (h). On or before June 30, 2008, if the fund or account
manager creates a fund or account devoid of companies described in
subdivision (b) or (c), the transfer of board investments from the
prior fund or account to the fund or account devoid of companies with
business operations in a foreign terrorist state shall be deemed to
satisfy subdivision (h).
(2) If the board's investment in a company described in
subdivision (b) or (c) is limited to an alternative fund or account,
the alternative fund or account manager creates an actively managed
commingled fund that excludes companies described in subdivision (b)
or (c), and the new fund or account is deemed to be financially
equivalent to the existing fund or account, the transfer of board
investments from the existing fund or account to the new fund or
account shall be deemed to satisfy subdivision (h). If the board
determines that the new fund or account is not financially equivalent
to the existing fund, the board shall include the reasons for that
determination in the report described in subdivision (i).
(3) The board shall make a good faith effort to identify any
private equity investments that involve companies described in
subdivision (b) or (c) or are linked to the government of a foreign
terrorist state. If the board determines that a private equity
investment clearly involves a company described in subdivision (b) or
(c) or is linked to the government of a foreign terrorist state, the
board shall consider, at its discretion, if those private equity
investments shall be subject to subdivision (h). If the board
determines that a private equity investment clearly involves a
company described in subdivision (b) or (c) or is linked to the
government of a foreign terrorist state and the board does not take
action as described in subdivision (h), the board shall include the
reasons for its decision in the report described in subdivision (i).
(g) Except as described in subdivision (f) or paragraph (2) of
subdivision (e), the board, in the board's capacity of shareholder or
investor, shall notify any company described in paragraph (1) of
subdivision (e) that the company is subject to subdivision (h) and
permit that company to respond to the information and reports
described in subdivision (d). The board shall request that the
company take substantial action no later than 90 days from the date
the board notified the company under this subdivision. If the board
determines that a company has taken substantial action or has made
sufficient progress towards substantial action before the expiration
of that 90-day period, that company shall not be subject to
subdivision (h). The board shall, at intervals not to exceed 90 days,
continue to monitor and review the progress of the company until
that company has taken substantial action in a foreign terrorist
state. A company that fails to complete substantial action or
continue to make sufficient progress towards substantial action by
the next time interval shall be subject to subdivision (h).
(h) If a company described in paragraph (1) of subdivision (e)
fails to complete substantial action by the time described in
subdivision (g), the board shall take the following actions:
(1) The board shall not make additional or new investments or
renew existing investments in that company.
(2) The board shall liquidate the investments of the board in that
company no later than 18 months after this subdivision applies to
that company. The board shall liquidate those investments in a manner
to address the need for companies to take substantial action in a
foreign terrorist state and consistent with the board's fiduciary
responsibilities as described in Section 17 of Article XVI of the
California Constitution.
(i) On or before January 1, 2009, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:
(1) A list of investments the board has in companies with business
operations in a foreign terrorist state, including, but not limited
to, the issuer, by name, of the stock, bonds, securities, and other
evidence of indebtedness.
(2) A detailed summary of the business operations a company
described in paragraph (1) has in a foreign terrorist state and
whether that company satisfies all of the criteria in subdivision (b)
or (c).
(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b) or (c).
(4) If the board has not completely reduced its investments in a
company that satisfies the criteria in subdivision (b) or (c), when
the board anticipates that the board will reduce all investments in
that company or the reasons why a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.
(5) Any information described in subdivision (e).
(6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations in a
foreign terrorist state as described in subdivision (f).
(j) If the board voluntarily sells or transfers all of its
investments in a company with business operations in a foreign
terrorist state, this section shall not apply except that the board
shall file a report with the Legislature related to that company as
described in subdivision (i).
(k) Nothing in this section shall require the board to take action
as described in this section unless the board determines, in good
faith, that the action described in this section is consistent with
the fiduciary responsibilities of the board as described in Section
17 of Article XVI of the California Constitution.
(l) Subdivision (h) shall not apply to any of the following:
(1) Investments in a company that is primarily engaged in
supplying goods or services intended to relieve human suffering in a
foreign terrorist state.
(2) Investments in a company that promotes health, education,
journalistic, or religious activities in or welfare in a foreign
terrorist state.
(3) Investments in a United States company that is authorized by
the federal government to have business operations in a foreign
terrorist state.
SEC. 2. Section 16642.5 is added to the Government Code, to read:
16642.5. Present, future, and former board members of the Public
Employees' Retirement System or the State Teachers' Retirement
System, jointly and individually, state officers and employees,
research firms described in subdivision (d) of Section 7513.4, and
investment managers under contract with the Public Employees'
Retirement System or the State Teachers' Retirement System shall be
indemnified from the General Fund and held harmless by the State of
California from all claims, demands, suits, actions, damages,
judgments, costs, charges and expenses, including court costs and
attorney's fees, and against all liability, losses, and damages of
any nature whatsoever that these present, future, or former board
members, officers, employees, research firms, or contract investment
managers shall or may at any time sustain by reason of any decision
to restrict, reduce, or eliminate investments pursuant to Section
7513.4.